Fractional reserve lending is NOT inherently fraudulent

[newbitech]

Perhaps we should agree on some definitions. M1 is basically the sum of cash and demand deposits. So their is 10X more money. The value of it is another question. For example, if the money supply is not increased with the growth in population, then we would have nominal deflation.

no argument there, I would also add that the only time that money loses its value is when the underlying asset increases. In our case today, the asset is money itself. And there in lies the real fraud. Since the US government can increase its balance sheet when ever it wants to vis-a-vis fiat money, there is no limit to downside ratio of reserve notes/deposits.

Also for instance if the government operated on hard money principles per the constitution, we'd still have the same problem of inflation if we discovered that underneath all that ice at the poles was a mountain of gold, or if say beneath the surface of mars were stripes of gold and silver veins, if some scientist discovered new physics and perfected alchemy.

None of this is fraudulent and if someone decides that they want to risk their gold to make those discoveries, who am I to try and stop them?

 

[anaconda]

Their must be a reason people do that despite the history. And I am pretty sure "ignorance" is not the reason.

Is ignorance the reason that people vote for John McCain and Barry Soetoro instead of Ron Paul? I think the situations are somewhat analogous. Convenience in transactions efficiency (i.e. writing checks, using a debit card) combined with FDIC "insurance" compel people to place their money (M1) into banks. But it's a bit like putting the frog into lukewarm water. When the Fed will cover budget deficits that are never resolved, and will bail out their cronies when they are "too big to fail," then we have a very strange beast in our midst. If the budget deficit was due and payable each year, their would be zero political will for deficits. And government taxation and spending would likely be far lower overall.

 

[anaconda]

I would also add that the only time that money loses its value is when the underlying asset increases.

Interesting post, food for thought. But, I have to say "not necessarily" to the above quote..If the "underlying asset" increases at the same rate as the GDP, then a consumer will continue to be able to purchase the same "basket of goods" for the same nominal money amount. Else you would have "deflation."

I think that, with respect to the interesting thought you have about finding a massive quantity of gold that was easily accessible, you would experience a dramatic increase in the price level. And, depending upon how much, even hyper inflation. But, I suspect that gold has been widely looked to because enough time and effort have transpired to have collective confidence that it is both desirable and sufficiently rare. If it suddenly became very very common and plentiful, the free market would shift into something else that they had more confidence in its scarcity. Maybe silver or uranium or emeralds or something.

Thanks for the good post.

 

[Optatron]

Is ignorance the reason that people vote for John McCain and Barry Soetoro instead of Ron Paul? I think the situations are somewhat analogous. Convenience in transactions efficiency (i.e. writing checks, using a debit card) combined with FDIC "insurance" compel people to place their money (M1) into banks. But it's a bit like putting the frog into lukewarm water. When the Fed will cover budget deficits that are never resolved, and will bail out their cronies when they are "too big to fail," then we have a very strange beast in our midst. If the budget deficit was due and payable each year, their would be zero political will for deficits. And government taxation and spending would likely be far lower overall.

in which case I think you don't disagree, it's not throwing a frog in poison or boiling water, it's warm water that's slowing heating up.

NOT inherent fraud, just an open gate to allow it.

 

[Optatron]

I think if you say that something is "payable upon demand," then that is a promise. No?

maybe it is, and this promise was made based on the history of people not caring, making it safe to promise what isn't 100% deliverable.

if you were to ask your bank , am I guaranteed 100% of the time to cash out, they'll probably not tell you "yes". they can already think up 10+ canned excuses so you know you can't complain later.

 

[newbitech]

Is ignorance the reason that people vote for John McCain and Barry Soetoro instead of Ron Paul? I think the situations are somewhat analogous. Convenience in transactions efficiency (i.e. writing checks, using a debit card) combined with FDIC "insurance" compel people to place their money (M1) into banks. But it's a bit like putting the frog into lukewarm water. When the Fed will cover budget deficits that are never resolved, and will bail out their cronies when they are "too big to fail," then we have a very strange beast in our midst. If the budget deficit was due and payable each year, their would be zero political will for deficits. And government taxation and spending would likely be far lower overall.

what is more of a risk? leaving your 40k in a bank where it collects interest and can be easily accessed or leaving carrying it around with you in your pocket or leaving it buried in your back yard? I think its up to the owner of the money to decide really. I wouldn't call it ignorant simply because there is a pretty healthy distrust of banks throughout history.

Politics is a bit different because those folks you mention straight up lie and deceive and offer nothing in return and no access. If someone wants to make that political investment, then i'd say they are pretty damn ignorant.

At the level you and I may be at in understanding, yeah it could be analogous. That's because we understand the methods that the fraudsters use. We also understand that facism is running rampant. That might not be so obvious to people who still see their country as say a democracy or "free".

I admit, I voted for Bush because I really had no idea about the alternatives. I thought lessor of two evils was a choice that I needed to make. I didn't even bother to see what I was voting for, I let someone else do the work for me. I was completely ignorant of politics. But at the same time, I knew better than to leave my money in soft assets. I understood that money is created when I go into debt. I also understood that money is destroyed when I come out of debt.
It was a basic understanding, but I for sure knew better than to bury my earnings in the back yard.

 

[Feenix566]

what is more of a risk? leaving your 40k in a bank where it collects interest and can be easily accessed or leaving carrying it around with you in your pocket or leaving it buried in your back yard? I think its up to the owner of the money to decide really. I wouldn't call it ignorant simply because there is a pretty healthy distrust of banks throughout history.

You still have the option of buying gold with your money and storing it in a safe deposit box. That way, you actually pay the bank for keeping your wealth safe (as opposed to earning interest on it or assuming the risk yourself) but you definitely keep your money.

 

[Optatron]

You still have the option of buying gold with your money and storing it in a safe deposit box. That way, you actually pay the bank for keeping your wealth safe (as opposed to earning interest on it or assuming the risk yourself) but you definitely keep your money.

oh no, here comes the "but there's legal tender laws" tsunami!

 

[anaconda]

in which case I think you don't disagree, it's not throwing a frog in poison or boiling water, it's warm water that's slowing heating up.

NOT inherent fraud, just an open gate to allow it.

If I put the frog in lukewarm water but leave the burner on, I have a inherent and diabolical intent where the frog is concerned.

 

[Optatron]

If I put the frog in lukewarm water but leave the burner on, I have a inherent and diabolical intent where the frog is concerned.

yes, IF you were the person who turned the burner on.

if you simply told the frog warm water is fun, without the intent of turning the burner on, the act of asking a frog to jump in warm water is not fraudulent or diabolical.

In fact, asking a frog to get into water that's ON the burner, BEFORE it's turned on, is not inherently diabological, the frog and you both know there's A CHANCE, somebody will turn the burner on.

 

[tremendoustie]

As we discussed in many previous threads, there's a difference between

A. Taking $10 in, lending $9, keeping only $1.
vs.
B. Taking $10 in, claiming to have $100, and lending out $90.
vs.
C. Taking $10, keeping it all.

A. Is the typical bank operation of fractional reserve
B. Is outright printing money, increasing money supply, "lending money that doesn't exist"
C. Simply depositing money and doing nothing with it.

The act of A in and of itself is NOT fraudulent, it ONLY is fraudulent if the depositor of the original $10 was told he can cash it at any time, and it won't be lent out without his consent (it which case, it's a broken promise or breach of contract). It's also fraudulent if a borrower was told the $9 he borrows wasn't originally borrowed from somebody else, and isn't aware can be asked back any time.

[url]http://www.market-ticker.org/archives/1019-Rebuttal-To-Mish-FRL.html[/URL]

WHAT'S WRONG WITH FRACTIONAL RESERVE AND LENDING IF EVERY PERSON AFFECTED AGREES TO EVERY PART OF IT?

Fraud means somebody was lied to, somebody was not told the whole story, but what if DEPOSITOR KNOWS, BANKS KNOWS, BORROWER KNOWS, ALL AGREE?

I agree in theory, as long as it is made clear to all depositors that the bank will not have enough money available for everyone to cash out at once. In the current practice, however, people trust fractional reserve banking because of the government's promise to back up their deposits by stealing other people's money. That's immoral.

In a free market, fractional reserve banking would be recognized as the risky endeavor that it is, and banks would be held accountable for any fiscal irresponsibility.

 

[Optatron]

I agree in theory, as long as it is made clear to all depositors that the bank will not have enough money available for everyone to cash out at once. In the current practice, however, people trust fractional reserve banking because of the government's promise to back up their deposits by stealing other people's money. That's immoral.

In a free market, fractional reserve banking would be recognized as the risky endeavor that it is, and banks would be held accountable for any fiscal irresponsibility.

that's ALL I WAS SAYING, nice on paper, bad in practice, not fraud in theory to begin with.

 

[anaconda]

yes, IF you were the person who turned the burner on.

if you simply told the frog warm water is fun, without the intent of turning the burner on, the act of asking a frog to jump in warm water is not fraudulent or diabolical.

In fact, asking a frog to get into water that's ON the burner, BEFORE it's turned on, is not inherently diabological, the frog and you both know there's A CHANCE, somebody will turn the burner on.

I do not blame the individual participating banks, specifically. Perhaps this is what you are suggesting. I think that the authors of the Federal Reserve act and their operatives in government had every intention of turning on the burner. That were wise and crafty and put it on a very low simmer in 1913. The water is about to boil.

 

[Optatron]

I do not blame the individual participating banks, specifically. Perhaps this is what you are suggesting. I think that the authors of the Federal Reserve act and their operatives in government had every intention of turning on the burner. That were wise and crafty and put it on a very low simmer in 1913. The water is about to boil.

yes, just like people who wish to legalize murder obviously have the intention of benefitting from it, but that doesn't mean legalizing something is an endorsement, support or an act of it per se.

 

[Conza88]

Yes, they keep a fraction of their deposits and lend out the rest. You described fractional reserve banking as keeping ALL of the deposits, and lending out NINE TIMES THE AMOUNT OF TOTAL DEPOSITS, which is a MULTIPLE of the amount deposited, NOT a fraction. You're so angry and frustrated that you aren't paying attention to anything anyone is saying. You are also pretending, in your near religious zealotry, that fractional reserve banking as it is practiced today is the only way it has ever been practiced, and the only way it could ever be practiced. That is demonstrably not the case.

Wrong. Keeping ALL deposits would be 100% RESERVE BANKING!!?!?! Lmfao!

Lending out 9 times or whatever TIMES THE AMOUNT is KEEPING A FRACTION LEFT OVER.. that is the fcken point, and how it gets it's name. The standard is 10% reserve... in the US the multiplier ends up about 6 times....

See Ron Paul:

The expansion of credit is one of the primary forms of inflation. It is not merely inflationary in its effects; it is inflation itself. If this $1.5 billion is created by the federal government, it will ripple and percolate through our banking system, and because of our fractional reserve system, the ultimate growth in the money supply will be far more than $1.5 billion. The standard multiplier is six; that means an infusion of $1.5 billion will eventually result in a $9 billion increase in the money supply.

It is still practiced the same way since it was in 1995... you are delusional.

FRB is the backdrop to the crime that has been perpetrated, and the cover. It isn't that FRB is inherently fraudulent, or even inflationary, any more than a car is responsible for a car accident. It's the fault of the driver, in this case, the Fed, for allowing things that aren't money (esp promissory notes) to be acceptable as deposits.

Calm down. Count to ten. Remember, you are talking to real people, not a computer screen.

FRB is the murder. It creates the business cycle.. something you've read nothing about.

It is guilty.. it just massacred everyone in the room...

 

[CCTelander]

This discussion is nothing more than mental masturbation.

In order for fractional reserve banking to be an honest means of doing business, you would have to have three components.

1. Universal understanding of how it works.
2. A monetary free market where currencies competed for customers.
3. The elimination of all legal tender laws.

Under these conditions, fractional reserve banking would be completely honest and fair. Everyone would know what they were getting involved with, no one would be required to participate if they didn't want to, and there would be a wide variety of options for people who wanted to choose some other means of exchange.

But under these conditions, no one would participate in fractional reserve banking. Who would choose to purchase fiat currency that is constantly losing value as it's continuously printed in increasing amounts? What vender would accept that currency in exchange for their goods or services when it would be worth less almost as soon as they put it in the cash register if they weren't being forced to at gunpoint?

If everyone really understood fractional reserve currency, and wasn't forced to participate in it, who would?

So the only situation wherein it wouldn't be inherently fraudulent, would be under such a set of conditions that no one would use it. In any set of circumstances where it would be used, either because people failed to understand it, or because they were forced to at gunpoint, it is inherently fraudulent.

Saying it isn't fraudulent as long as someone knows what they're getting into and agrees to it is like saying rape isn't violent and immoral as long as the victim knows they are going to get raped and agrees to it ahead of time. Which would of course be true. But then it's not rape.

And neither would fractional reserve banking be rape under those circumstances. It wouldn't be anything.

Because if people really knew what was going on, and had a choice, they wouldn't participate in it at all, and then it wouldn't exist.


-Rob

This. ^

 

[Optatron]

Wrong. Keeping ALL deposits would be 100% RESERVE BANKING!!?!?! Lmfao!

Lending out 9 times or whatever TIMES THE AMOUNT is KEEPING A FRACTION LEFT OVER.. that is the fcken point, and how it gets it's name. The standard is 10% reserve... in the US the multiplier ends up about 6 times....

See Ron Paul:

It is still practiced the same way since it was in 1995... you are delusional.



FRB is the murder. It creates the business cycle.. something you've read nothing about.

It is guilty.. it just massacred everyone in the room...

why does it stop at 6x? not 600x?

 

[Conza88]

why does it stop at 6x? not 600x?

Because it's fractional reserve banking...

It's not "multiple reserve banking..."

Which is a term you, quite frankly - pulled out of your ass. No?

At least you're admitting your ignorance. You should probably read some books, on the subject?

That might be a start..

Mises.. Hayek... De Soto... Salerno... Hoppe... Rothbard... to name but a few.

 

[Optatron]

Because it's fractional reserve banking...

It's not "multiple reserve banking..."

Which is a term you, quite frankly - pulled out of your ass. No?

So it stops somewhere, and banks have the obligation to check each other, just as much as customers do.

If you're selling a house for $1M, wouldn't you want to know if the money a bank is lending your buyer is printed in cash, on demand anytime?

I didn't say multiple reserve banking, but I did say overnight, uncontrollable, and runaway inflation if scenario B were true in any sense.

As you admitted here, it's contained, and JUST AS LONG AS YOU KNOW WHERE THE MONEY STOPS MULTIPLYING, WHY WOULD THAT BE FRAUD?

Did anybody promise you "your dollar will be only one of 1,000,000,000,000 we promise never to lend or print more"?

Must a cigarette company tell you the exact effects to your lung, or be accused of FRAUD?

Must every business disclose everything, or else it's FRAUD?

Your definition of fraud is, as long as you're not informed 100% of what there is, and as long as not 100% of the promises are delivered, it's an act of fraud?

Why can't there be more titles than there are cars? What if the extra titles said "these are extra, dont be the last loser"
Who's being frauded when I told you I printed 1000 titles for 900 cars?
Who's being frauded when I told you I'm selling you a square circle and you're stupid enough to pay for it?
Who's being lied to, if a bank ever said "we don't have $100K in our vaults to lend you, but bank B will trust we can give it back later, so here's an IOU you can take to bank B, they'll take it, and you just promise you'll pay back $100K because we Bank A, you and Bank B all agreed to it"

 

[Conza88]

There is no such thing as multiple reserve banking in Banking history. No real world example.. never has, never will be. Because it was pulled out of your ass, and is thus = crap.

You are profoundly ignorant and consequently have no idea what you are talking about.

Fractional Reserve banking is fraudulent. As has been established countless times.

Your denial of it, and instead attempted re-definition of FRB to = Multiple reserve banking, is wrong, fallacious and retarded.

FURTHERMORE, you cannot have free markets if you don't have property rights. NOW since you don't believe in rights, why the fck are you wasted your time? lol...

You talk about trade... THAT REQUIRES PROPERTY RIGHTS... aahhahaha